Set-Off Clause

AAA

DEFINITION of 'Set-Off Clause'

A legal clause that gives a lender the authority to seize a debtor's deposits when they default on a loan. A set-off clause can also refer to a settlement of mutual debt between a creditor and a debtor through offsetting transaction claims. This allows creditors to collect a greater amount than they usually could under bankruptcy proceedings.

INVESTOPEDIA EXPLAINS 'Set-Off Clause'

If a debtor is unable to meet an obligation to his or her bank, the bank can seize the customer's current deposit. Set-off provisions are not limited to loans between banks and their customers, but are also widely used in other industries, such as construction.

The Truth in Lending Act prohibits set-off clauses from applying to credit card transactions; this protects consumers who decline to pay for defective merchandise.

RELATED TERMS
  1. Truth In Lending Act - TILA

    A federal law enacted in 1968 with the intention of protecting ...
  2. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  3. Default

    1. The failure to promptly pay interest or principal when due. ...
  4. Bankruptcy

    A legal proceeding involving a person or business that is unable ...
  5. Writ Of Seizure And Sale

    An order issued by a court that allows the petitioner (usually ...
  6. Behavioral Modeling

    Using available and relevant consumer and business spending data ...
RELATED FAQS
  1. How are corporate poison pills regulated in the United States?

    The Delaware Supreme Court was the first legal authority to declare poison pills a valid initiative. This defense is either ... Read Full Answer >>
  2. How legally binding is a letter of intent?

    A signatory may be bound to a letter of intent depending on how the letter is drafted. In a business-to-business transaction, ... Read Full Answer >>
  3. How do prepaid debit cards work?

    Prepaid debit cards work almost like a combination of a credit card and a checking account. Prepaid debit cards are issued ... Read Full Answer >>
  4. How does a letter of intent work in the context of mergers and acquisitions?

    A letter of intent, or LOI, is used to set forth the terms of a proposed merger or acquisition. It is usually the first step ... Read Full Answer >>
  5. How do I get a higher limit on my credit cards?

    Before applying for a higher credit limit, it is important to demonstrate responsibility. One way to do this is by making ... Read Full Answer >>
  6. Where are secured credit cards accepted?

    Secured credit cards can be used just like regular credit cards wherever credit cards are accepted. Secured credit cards ... Read Full Answer >>
Related Articles
  1. Taxes

    Top 9 Solutions To An Unexpected Tax Bill

    Finding out you owe when you expected a refund is a nasty shock. Find out how to cope.
  2. Taxes

    IRS Asset Seizures: Could It Happen To You?

    If you can't pay your taxes, know that the IRS has many avenues for collecting what you owe.
  3. Options & Futures

    Asset Protection For The Business Owner

    Could incorporating your business help protect it? Find out here.
  4. Forex Fundamentals

    Bitcoin Transactions Vs. Credit Card Transactions

    We provide an overview of the differences between bitcoin and credit card transactions, and the advantages of using one over the other.
  5. Credit & Loans

    The Pros & Cons Of Personal Loans vs. Credit Cards

    One is not like the other. We help you decide where to borrow money from.
  6. Credit & Loans

    How Is Cashback Profitable For Credit Card Companies?

    Cashback rewards are not as beneficial to the consumer as they might initially seem.
  7. Savings

    Why Do Credit Cards Expire?

    Credit cards expire for more reasons than you could imagine โ€“ including, so you don't forget you have the card.
  8. Credit & Loans

    Meet The Company Behind Your FICO Score

    There are other credit scores that evaluate lending risk, but FICO is still the choice of most U.S. lenders.
  9. Stock Analysis

    How MasterCard Likely Earned a Spot in Your Wallet

    An in depth look at MasterCard and its future prospects as an investment.
  10. Credit & Loans

    6 Ways To Build Credit Without A Credit Card

    It's definitely possible โ€“ if a bit more complicated โ€“ to build a credit history without traditional credit cards. Just follow these steps.

You May Also Like

Hot Definitions
  1. Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment ...
  2. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  3. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  4. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  5. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  6. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
Trading Center